FNCE 3001 Week 10 Income Statement Forecast Memo Example

Memorandum

To: Chief Financial Officer, Juniper Peak Sports

From: Financial Analyst

Date: March 23, 2026

Re: Fiscal 2026 income statement projection and its drivers

Summary

On the drivers below, fiscal 2026 net income is projected at about $5.57 million, or $1.39 a share, up from $4.68 million and $1.17. The projection covers the existing fourteen stores only; the three planned stores are excluded until their financing is decided. The largest single assumption is sales growth of 7.5 percent. Amounts are in thousands; the base year is fiscal 2025 from the audited annual report.

The Projection

Table 1

Fiscal 2026 Projected Income Statement (in thousands)

Composite company. Earnings per share assume 4,000,000 shares.

Where Each Driver Came From

Sales growth. Sales grew 7.6 percent in fiscal 2024 (from $72,500 to $78,000 thousand) and 7.7 percent in fiscal 2025. The projection uses 7.5 percent, slightly below the two-year average of 7.65 percent, because about half of fiscal 2025's growth came from the Provo store opening, which will not repeat, while a full year of that store adds some growth. A one-point change in this assumption moves net income by about $73 thousand, mostly through gross profit.

Cost of goods sold. The ratio of cost of goods sold to sales was 59.2 percent in fiscal 2023, 59.0 percent in fiscal 2024 and 60.0 percent in fiscal 2025. The projection uses the three-year average, 59.4 percent. If fiscal 2025's 60.0 percent reflected a lasting change rather than one season's ski discounting, cost of goods sold would be about $540 thousand higher and net income about $405 thousand lower.

Selling, general and administrative expense. This has run at 29.0 percent of sales in each of the last three years, so it is projected to vary with sales at the same rate. Some of these costs, such as rent, are fixed in the short run, so this treatment may slightly overstate them.

Depreciation follows the asset base, not sales. It rose from $1,950 to $2,100 thousand last year, about 7.7 percent, as fixed assets grew. With $2,400 thousand of replacement spending planned, slightly more than this year's depreciation, the base grows modestly again, so depreciation is projected to rise about 7 percent, to $2,250 thousand.

Interest follows the debt schedule. The term loan falls from $12,000 to $10,500 thousand during the year; at the loan's effective rate of 7.06 percent on the average balance of $11,250 thousand, interest is about $794 thousand. The tax rate is held at fiscal 2025's effective 25 percent.

Checks and Cautions

The projection was checked against the company's recent pattern: net margin rises from 5.6 to 6.2 percent, back to fiscal 2024's level, which is plausible if gross margin recovers. Koller et al. (2020) advise testing a forecast's margins against the firm's own history before trusting its totals, and on that test this projection is within range. The main cautions are snow, which drives the ski business, and the inventory overhang from fiscal 2025, which could depress margins again if clearance discounts continue. A downside case with 4 percent growth and a 60 percent cost ratio gives net income of about $4.9 million. I recommend we update the projection after the first quarter (Brigham & Houston, 2022; Ross et al., 2022).

References

Brigham, E. F., & Houston, J. F. (2022). Fundamentals of financial management (16th ed.). Cengage Learning.

Koller, T., Goedhart, M., & Wessels, D. (2020). Valuation: Measuring and managing the value of companies (7th ed.). Wiley.

Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2022). Fundamentals of corporate finance (13th ed.). McGraw Hill.